## Cash Flow from Investing and Financing Activities

### Section B – Investing Activities

Captures cash used or generated in acquiring and disposing long-term assets and non-current investments.

#### Cash Inflows

Item	Note
Sale proceeds from PPE	Actual cash received (not book value)
Sale proceeds from investments	Actual cash
Interest received	Investing or Operating — choose consistently
Dividends received	Investing or Operating — choose consistently

#### Cash Outflows

Item	Note
Purchase of PPE	Full cost
Capital expenditure (building renovation, WiP)	Capitalised amounts only
Purchase of investments	Acquisition cost

> Show gross figures. Purchase of PPE and sale of PPE are reported separately — do not net them.

Finding Sale Proceeds of PPE:

Sale Proceeds = Net Book Value of disposed asset ± Profit or Loss on sale

Or reconstruct via the PPE T-account (see Lesson 3).

---

### Section C – Financing Activities

Captures cash flows that change the size or composition of long-term capital — equity, preference, debentures, long-term loans.

#### Cash Inflows

Item
Issue of equity / preference shares (including premium)
Issue of debentures, bonds, long-term loans

#### Cash Outflows

Item	Note
Repayment of debentures / bonds / loans	Principal only
Redemption of preference shares	Capital return
Dividend paid	Only actually paid cash
Interest paid	Financing or Operating — choose consistently

Dividend Paid ≠ Dividend Proposed.

Proposed dividend is a current liability change (working capital); only the amount actually paid in cash during the year appears here.

---

### AS 3 Classification Flexibility

AS 3 permits these items in either section. The choice must be applied consistently across periods:

Item	Primary	Alternative
Interest paid	Financing	Operating
Interest received	Investing	Operating
Dividends received	Investing	Operating
Dividends paid	Financing	Operating

In exam questions the classification is usually stated — follow the instruction given.

---

### Final CCE Reconciliation

```

A: Net Cash from Operating Activities ₹ X

B: Net Cash from Investing Activities (₹ X)

C: Net Cash from Financing Activities ₹ X

————

Net Increase / (Decrease) in CCE ₹ X

Add: Opening Cash and Cash Equivalents ₹ X

————

Closing Cash and Cash Equivalents ₹ X ← must match Balance Sheet

```

If the statement does not reconcile, a non-cash transaction has been incorrectly included, or a cash item has been omitted.

Worked example

### Example 1

Illustration – USR Pg 315: Investing and Financing Sections

Section B – Cash Flow from Investing Activities

	₹
Interest income received	6,000
Sale proceeds from Plant	5,000
Sale proceeds from Investments	1,02,000
Less: Purchase of Plant	(1,20,000)
Less: Purchase of Investments	(78,000)
Net Cash from Investing Activities (B)	(₹85,000)

Sale proceeds from Plant: Loss on sale = ₹3,000. Book value of disposed plant was ₹8,000 (from T-account). Proceeds = ₹8,000 − ₹3,000 loss = ₹5,000.

Sale proceeds from Investments: ₹1,02,000 — derived from Investment T-account (Opening ₹1,27,000 + Purchases ₹78,000 + Profit ₹12,000 − Closing ₹1,15,000 = ₹1,02,000).

Section C – Cash Flow from Financing Activities

	₹
Issue of Shares	1,50,000
Less: Bonds repaid	(50,000)
Less: Interest paid	(23,000)
Less: Dividend paid	(8,000)
Net Cash from Financing Activities (C)	₹69,000

CCE Reconciliation

	₹
A: Operating	47,000
B: Investing	(85,000)
C: Financing	69,000
Net increase in CCE	31,000
Opening CCE	15,000
Closing CCE	₹46,000

### Example 2

Illustration 1 – Investing and Financing Sections

Section B – Cash Flow from Investing Activities

	₹
Sale proceeds from Plant	49,000
Less: Purchase of Plant	(4,48,000)
Less: Building Renovation (capitalised)	(2,80,000)
Less: Purchase of Investments	(1,40,000)
Net Cash from Investing Activities (B)	(₹8,19,000)

Note: Building renovation is capitalised → it is an Investing outflow, not an operating expense.

Section C – Cash Flow from Financing Activities

	₹
Issue of Shares	2,80,000
Issue of Debentures	2,80,000
Net Cash from Financing Activities (C)	₹5,60,000

CCE Reconciliation: A (₹2,59,000) + B (−₹8,19,000) + C (₹5,60,000) = NIL

Opening CCE ₹2,80,000 → Closing CCE ₹2,80,000 ✓

⚠️ Common exam mistakes

Using book value of disposed PPE instead of actual sale proceeds — always use cash received; profit/loss on sale is only an adjustment in operating activities
Classifying building renovation or WiP as an operating expense — any capitalised expenditure is an Investing outflow regardless of how it appears in the P&L
Double-counting interest or dividends: once removed from Operating (Step 4), the item must appear in Investing or Financing — it cannot be silently dropped
Including exchange of assets for debentures or shares (non-cash transaction) as both an Investing inflow and a Financing inflow — non-cash transactions are entirely excluded from the statement and disclosed in a note
Treating the closing balance of 'Proposed Dividend' as a financing outflow — only the dividend actually paid during the year (i.e., last year's proposed dividend paid this year) is a cash outflow
Including repayment of bank overdraft under Financing — bank overdraft is usually a cash equivalent (part of CCE) and affects opening/closing CCE, not a financing activity

Bare-Act text Paragraphs 6 and 30 · AS 3 (Revised) – Cash Flow Statements, ICAI · click to expand

6. Definitions — Investing activities: The acquisition and disposal of long-term assets and other investments not included in cash equivalents. Financing activities: Activities that result in changes in the size and composition of the owners' capital (including preference share capital in the case of a company) and borrowings of the enterprise. 30. Interest paid may be classified as an operating cash flow because it enters into the determination of net profit or loss. Alternatively, interest paid may be classified as a financing cash flow because it is a cost of obtaining financial resources. Interest received may be classified as an operating cash flow because it enters into the determination of net profit or loss. Alternatively, interest received may be classified as an investing cash flow because it is a return on investments. Dividends paid may be classified as a financing cash flow because it is a cost of obtaining financial resources. Alternatively, dividends paid may be classified as an operating cash flow in order to assist users to determine the ability of an enterprise to pay dividends out of operating cash flows.

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Investing and Financing Activities – Classification and Computation

Worked example

⚠️ Common exam mistakes